Why ‘Full Employment’ Isn’t the Whole Picture of the Job Market

In November, the unemployment rate officially hit 5 percent, according to the Bureau of Labor Statistics, the rate many economists use to mark “full employment.” But as Nelson D. Schwartz wrote at The New York Times, “The slack that built up in the labor market after the recession … has changed traditional calculations of how far unemployment can fall before the job market tightens and the risk of inflation rises.” In other words, on economic or personal level, that 5 percent unemployment marker might not mean what it used to mean.

Do You Know What You're Worth?

A recent article from Fortune pointed out that the economy is “still missing jobs.” The jobs they’re talking about aren’t the 5 percent in the unemployment rate, but rather the jobs we “should” have by now, had the economy continued to grow at the rate it was before the great recession: 6.4 million, by their calculation. That gap, according to Fortune, if the economy continues as it is, will now be closed by 2020.

In addition to the missing jobs, the Economic Policy Institute is quick to point out that there are also missing workers: the people who are so discouraged by the job market that they’ve simply stopped looking. If they were accounted for in the jobs report, EPI says, unemployment would be more in the ballpark of 7 percent.

With all of these qualifiers, it’s hard to say that full employment is the metric we should really be aiming for.

But What Unemployment Are We Talking About?

This helpful explanation from About.com breaks unemployment down into three categories — cyclical, frictional, and structural. Cyclical is the worst kind, but frictional refers to that woman or man who wants to switch jobs. And structural could be an instance where the fossil fuel industry loses jobs because of a rise in alternative energy sources. It’s a “net positive” change for the good of the economy that results in some job loss along the way.

So it’s important to define our terms. Full employment, as this Wall Street Journal article explains, would mean no cyclical unemployment. So we’ve still got two unaccounted for types of unemployment, and we’re left with a rather incomplete picture of where employment in this country really stands.

So Is “Full Employment” the Right Metric?

While Americans may not want every job filled to the point where we’re bringing in workers to close the gaps — as happened in Monaco when they had zero unemployment — Americans are ostensibly hoping for an economy where people who want to work can work. But if we’re going to hit that mark, we need jobs reports that tell the whole story.

Check out the latest report from the Bureau of Labor Statistics, which reported a 5 percent unemployment rate. If you jump down to Alternative measures of labor underutilization, which includes not only those who qualify for unemployment, but also “all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force,” the rate is really closer to 10 percent. Double.

Looking to the Public Sector

As we’re trying to close the gap, it’s interesting to look back on history and see how previous administrations tried to tackle this problem. Arguing in favor of full employment, economics professor L. Randall Wray reminds us of the Employment Act of 1946, under Truman, which had a goal of “high” employment.

Wray’s own proposal to bring back some sort of “employer of last resort” program is just one of many that could prove a compelling alternative to standard unemployment welfare. Regardless, how the government chooses to act will certainly capture the attention of more than just 5 percent of Americans.

Tell Us What You Think

Do you these hack economics are a bunch of socialist hooey? What’s your take on full employment in America? Tell us your thoughts in the comments below or by joining the conversation on Twitter.

Peter Swanson

Peter Swanson is a writer with a passion for empowering others to be self-starters. Navigating the world of start-ups, freelancers, and entrepreneurs, Peter is bent on clear communication, working with integrity, and spreading a "get it done" attitude. He obtained his Bachelor's in English from Biola University.

I understand the frustration at the way unemployment is tracked and counted, but finger pointing at the current administration is short-sighted. I do not believe anyone has changed the way the government calculates the rate. And the 5 percent figure (the U-3 rate) is not the only number that comes from the DOL. They provided data on seasonal adjusted rates, rates that include or exclude part-time, etc. These numbers have been available for decades. Politicians and the media tend to focus on the numbers that suit their stories best. Plus, you can get data from other sources such as Gallup… Read more »

I no longer trust the government in many ways. The new way of calculating unemployment has never really been revealed to the public. We do know that those who have given up looking for work entirely are no longer in the calculations. It is DECEPTIVE to do that. IT is like telling a LIE. In addition, if i am correct they also now count part time jobs as employment. So many people cannot find a full time job, because there just are not any out there. So they are working to jobs at lower rates of pay to try and… Read more »